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Unmeasured investment and the puzzling U.S. boom in the 1990s

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  • Ellen R. McGrattan
  • Edward C. Prescott

Abstract

For the 1990s, the basic neoclassical growth model predicts a depressed economy, when in fact the U.S. economy boomed. We extend the base model by introducing intangible investment and non-neutral technology change with respect to producing intangible investment goods and find that the 1990s are not puzzling in light of this new theory. There is micro and macro evidence motivating our extension, and the theory’s predictions are in conformity with U.S. national accounts and capital gains. We compare accounting measures with corresponding measures for our model economy. We find that standard accounting measures greatly understate the 1990s boom. ; Earlier title: Why did U.S. market hours boom in the 1990s? ; Earlier title: Unmeasured investment and the 1990s U.S. hours boom

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 369.

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Date of creation: 2009
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Handle: RePEc:fip:fedmsr:369

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Keywords: Business cycles ; Productivity;

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Cited by:
  1. Oana Hirakawa & Marc-Andreas Muendler & James E. Rauch, 2010. "Employee Spinoffs and Other Entrants: Stylized Facts from Brazil," NBER Working Papers 15638, National Bureau of Economic Research, Inc.
  2. Pedro Miguel Soares Brinca, 2013. "Distortions in the Neoclassical Growth Model: A Cross Country Analysis," 2013 Papers pbr150, Job Market Papers.
  3. Benedetto Molinari & Francesco Turino, 2009. "Advertising, Labor Supply and the Aggregate Economy. A long run Analysis," Working Papers 09.16, Universidad Pablo de Olavide, Department of Economics.
  4. Lustig, Hanno & Syverson, Chad & Van Nieuwerburgh, Stijn, 2011. "Technological change and the growing inequality in managerial compensation," Journal of Financial Economics, Elsevier, vol. 99(3), pages 601-627, March.
  5. Yazid Dissou & Lilia Karnizova, 2012. "Emissions Cap or Emissions Tax? A Multi-sector Business Cycle Analysis," Working Papers 1210E, University of Ottawa, Department of Economics.
  6. Lilia Karnizova, 2013. "Letting the speculative and the news views of the Japanese business cycle compete," Economics Bulletin, AccessEcon, vol. 33(2), pages 1146-1158.
  7. Dooyeon Cho & Antonio Doblas-Madrid, 2013. "Business Cycle Accounting East and West: Asian Finance and the Investment Wedge," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 724-744, October.
  8. Urban Jermann & Vincenzo Quadrini, 2012. "Macroeconomic Effects of Financial Shocks," American Economic Review, American Economic Association, vol. 102(1), pages 238-71, February.
  9. Che, Natasha Xingyuan, 2009. "Sectoral Structural Change in a Knowledge Economy," MPRA Paper 19653, University Library of Munich, Germany.
  10. Francois Gourio & Leena Rudanko, 2011. "Customer Capital," NBER Working Papers 17191, National Bureau of Economic Research, Inc.
  11. Ayse Imrohoroglu & Kaiji Chen, 2012. "Debt and the U.S. Economy," 2012 Meeting Papers 229, Society for Economic Dynamics.
  12. Che, Natasha Xingyuan, 2009. "The great dissolution: organization capital and diverging volatility puzzle," MPRA Paper 13701, University Library of Munich, Germany.
  13. Lilia Karnizova, 2012. "News Shocks, Productivity and the U.S. Investment Boom-Bust Cycle," Working Papers 1201E, University of Ottawa, Department of Economics.
  14. Conesa, Juan C. & Domínguez, Begoña, 2013. "Intangible investment and Ramsey capital taxation," Journal of Monetary Economics, Elsevier, vol. 60(8), pages 983-995.
  15. Gourio, Francois & Rudanko, Leena, 2014. "Can Intangible Capital Explain Cyclical Movements in the Labor Wedge?," Working Paper Series WP-2014-2, Federal Reserve Bank of Chicago.

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